Net Retention: How Has the Game Changed?
How does a company like New Relic post 70 plus percent revenue growth year-over-year? How has Veeva transformed the conversation about vertical SaaS, continuing to grow at 50 percent, even with a highly targeted set of industry-specific customers?
Behind these and numerous other top line success stories is a compelling narrative. Long before their IPO, many of the most successful subscription companies became very good at retaining and growing their customer relationships over time. Veeva and New Relic are particularly strong in this respect, but data suggests that their excellence may be part of a larger trend.
We looked at data from 17 public companies to identify what we can learn about retention from today’s leading subscription companies. The results validate the importance of success in this domain:
• Median net retention stands at 100 percent, meaning that the median company gains at least as much recurring revenue as it loses from each cohort of customers over time.
• The top half of companies in net retention grow at nearly twice the rate of companies in the bottom half, suggesting that net retention is one of the key ways in which hyper-growth companies become hyper-growth companies.
• Companies are positioned to invest more in sales and marketing for each dollar of new business that they acquire, and appear to take advantage of this in practice, something which may give them a powerful competitive edge.